-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GDtVdgsZx0oSkRCXWjt7xEIKgO8zLDS9WQMu6UnuIyCIi+Ywc7aTZuoQo37OyNFH jYu9sLeWVtysrC/31GUq5A== 0000950005-98-000888.txt : 19981116 0000950005-98-000888.hdr.sgml : 19981116 ACCESSION NUMBER: 0000950005-98-000888 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HUMAN PHEROMONE SCIENCES INC CENTRAL INDEX KEY: 0000878616 STANDARD INDUSTRIAL CLASSIFICATION: PERFUMES, COSMETICS & OTHER TOILET PREPARATIONS [2844] IRS NUMBER: 943107202 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-23544 FILM NUMBER: 98747508 BUSINESS ADDRESS: STREET 1: 4034 CLIPPER CT CITY: FREMONT STATE: CA ZIP: 94538 BUSINESS PHONE: 5102266874 FORMER COMPANY: FORMER CONFORMED NAME: EROX CORP DATE OF NAME CHANGE: 19940307 10QSB 1 FORM 10QSB U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (MARK ONE) [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended September 30, 1998 ------------------ [ ] TRANSITION REPORT UNDER SECTION 13 OR A5(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (no fee required) Commission file number 0-23544 HUMAN PHEROMONE SCIENCES, INC. ------------------------------ (Name of small business issuer in its charter) California 94-3107202 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. employee Identification No.) incorporation or organization) 4034 Clipper Court, Fremont, California 94538 - ---------------------------------------- ------------------------------ (Address of principal executive offices) (Zip code) Issuer's telephone number: (510) 226-6874 -------------- Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] (APPLICABLE ONLY TO CORPORATE REGISTRANTS) State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. 10,289,488 shares of Common Stock as of November 9, 1998. Total Pages: 15 HUMAN PHEROMONE SCIENCES, INC. INDEX
Page ---- PART I FINANCIAL INFORMATION Item 1. Financial Statements Condensed Balance Sheets (Unaudited) as of September 30, 1998 and December 31, 1997...........................................................................2 Statements of Operations (Unaudited) for the Three Months and Nine Months Ended September 30, 1998 and 1997.....................................................................3 Condensed Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 1998 and 1997...............................................................4 Notes to Condensed Financial Statements (Unaudited).............................................5 Item 2. Management's Discussion and Analysis Management's Discussion and Analysis of Financial Condition and Results of Operations...........6 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K................................................................11 SIGNATURES.......................................................................................................12
PART I FINANCIAL INFORMATION Item 1. Financial Statements HUMAN PHEROMONE SCIENCES, INC. Balance Sheets
September 30, December 31, 1998 1997 ------------ ------------ Assets Current assets: Cash and cash equivalents $ 26,205 $ 248,617 Accounts receivable, net of allowances of $554,978 and $822,813 in 1998 and 1997, respectively 2,037,047 3,084,784 Inventory 3,153,259 3,421,298 Other current assets 112,417 128,817 ------------ ------------ Total current assets 5,328,928 6,883,516 Property and equipment, net 71,449 99,491 ------------ ------------ $ 5,400,377 $ 6,983,007 ============ ============ Liabilities and shareholders' equity Loan payable, bank $ 1,305,390 $ 548,000 Accounts payable 952,706 800,648 Other accrued expenses 1,067,847 1,205,069 ------------ ------------ Total current liabilities 3,325,943 2,553,717 Commitments -- -- Shareholders' equity: Convertible preferred stock, issuable in series, no par value, 10,000,000 shares authorized, 1,433,333 shares issued and outstanding at September 30, 1998 and December 31, 1997, respectively 2,145,535 2,145,535 Common stock, no par value, 40,000,000 shares authorized, 10,289,488 shares issued and outstanding at September 30, 1998 and December 31, 1997, respectively 17,667,024 17,667,024 Accumulated deficit (17,738,125) (15,383,269) ------------ ------------ Total shareholders' equity 2,074,434 4,429,290 ------------ ------------ $ 5,400,377 $ 6,983,007 ============ ============ See accompanying notes.
HUMAN PHEROMONE SCIENCES, INC. Statements of Operations
Three months ended Nine months ended ---------------------------- ---------------------------- September 30, September 30, ---------------------------- ---------------------------- ------------ ------------ ------------ ------------ 1998 1997 1998 1997 ------------ ------------ ------------ ------------ Net sales $ 2,312,805 $ 3,847,893 $ 7,581,223 $ 12,761,724 Cost of goods sold 885,391 1,095,898 2,556,664 2,985,541 ------------ ------------ ------------ ------------ Gross profit 1,427,414 2,751,995 5,024,559 9,776,183 Expenses: Research and development 107,751 86,844 290,199 251,700 Selling, general and administrative 1,502,715 2,356,938 7,062,857 12,941,739 ------------ ------------ ------------ ------------ Total expenses 1,610,466 2,443,782 7,353,056 13,193,439 ------------ ------------ ------------ ------------ Loss from operations (183,052) 308,213 (2,328,497) (3,417,256) Interest income 58 15 220 12,486 Interest (expense) (16,658) (23,514) (38,127) (60,342) Other (expense) 13,737 (34) 11,548 2,358 ------------ ------------ ------------ ------------ Income (loss) before income taxes (185,915) 284,680 (2,354,856) (3,462,754) Income taxes -- 10,489 -- 11,289 ------------ ------------ ------------ ------------ Net income (loss) $ (185,915) $ 274,191 $ (2,354,856) $ (3,474,043) ============ ============ ============ ============ Net income (loss) per common share-basic $ (.02) $ .03 $ (.23) $ (.34) ============ ============ ============ ============ Net income (loss) per common share- assuming dilution $ (.02) $ .03 $ (.23) $ (.34) ============ ============ ============ ============ Weighted average shares used in calculation of net income (loss) per share 10,289,488 10,304,125 10,289,488 10,265,274 ============ ============ ============ ============ Weighted average shares and equivalents, if dilutive, used in calculation of net income (loss)per common share 10,289,488 10,304,125 10,289,488 10,265,274 ============ ============ ============ ============ See accompanying notes.
HUMAN PHEROMONE SCIENCES, INC. Statements of Cash Flows
Nine Months ended September 30, -------------------------------- 1998 1997 ------------ ----------- Cash flows from operating activities Net loss $(2,354,856) $(3,474,043) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 49,838 48,040 Changes in operating assets and liabilities: Accounts receivable 1,047,737 (436,007) Inventory 268,039 (1,281,066) Other current assets 16,400 (92,260) Accounts payable and accrued liabilities 14,836 65,599 ----------- ----------- Net cash generated by (used in) operating activities (958,006) (5,169,737) Cash flows from investing activities Purchase of property and equipment (21,796) (91,928) ----------- ----------- Net cash used in investing activities (21,796) (91,928) Cash flows from financing activities Proceeds from bank borrowings 757,390 772,149 Proceeds from issuance of preferred stock -- 2,150,000 Proceeds from issuance of common stock -- 292,289 ----------- ----------- Net cash provided by financing activities 757,390 3,214,438 Net decrease in cash and cash equivalents (222,412) (2,047,227) Cash and cash equivalents at beginning of the year 248,617 2,059,084 ----------- ----------- Cash and cash equivalents at end of the period $ 26,205 $ 11,857 =========== =========== See accompanying notes.
Human Pheromone Sciences, Inc. Notes to Condensed Financial Statements (unaudited) September 30, 1998 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months and nine months ended September 30, 1998 are not necessarily indicative of the results that may be expected for the calendar year ending December 31, 1998. For further information, refer to the financial statements and footnotes thereto included in the Company's annual report on Form 10-KSB for the year ended December 31, 1997. Inventory Inventories are stated at the lower of cost (first in - first out method) or market. The inventory at September 30, 1998 consists of finished goods inventory valued at $1,134,023 work in process of $215,415 and raw materials of $1,803,821. At December 31, 1997, these balances were $1,665,393, $151,143 and $1,604,762, respectively. Net Income (Loss) Per Share In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 (SFAS 128), Earnings per Share. Statement 128 replaced the previously reported primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is similar to the previously reported fully diluted earnings per share. All per share amounts for all periods have been presented, and where necessary, restated to conform to Statement 128 requirements. Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding. Diluted net income per share is computed using the weighted-average number of common shares and dilutive common equivalent shares outstanding during the period. Dilutive common share equivalents consist of employee stock options using the treasury stock method and dilutive convertible securities using the if-converted method. Diluted net income (loss) per share are computed using the weighted-average number of common shares outstanding during the period. Common stock equivalents are excluded from the diluted net (loss) per share computation as their effect in antidilutive. The following table sets forth the computation for basic and diluted net income (loss) per share:
Three months ended Nine months ended ---------------------------------- ----------------------------------- September 30, September 30, ---------------------------------- ----------------------------------- 1998 1997 1998 1997 -------------- --------------- --------------- --------------- Numerator: Net income (loss) from operations $ (185,915) $ 274,191 $ (2,354,856) $ (3,474,043) Denominator: Denominator for basic net income (loss) per-share-data 10,289,488 10,304,125 10,289,488 10,265,274 Denominator for diluted net income (loss) per-share data 10,289,488 10,304,125 10,289,488 10,265,274 Basic net income (loss) per share (.02) .03 (.23) (.34) Diluted net income loss per share (.02) .03 (.23) (.34)
Human Pheromone Sciences, Inc. Notes to Condensed Financial Statements (unaudited) September 30, 1998 2. LOAN PAYABLE, BANK At September 30, 1998, the Company was not in compliance with all of the covenants of its line of credit bank loan with Mid-Peninsula Bank. The bank has waived compliance with these covenants for the period ended September 30, 1998. Item 2. Management's Discussion and Analysis This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Except for the historical information contained in this discussion and analysis of financial condition and results of operations, the matters discussed herein are forward looking statements. These forward looking statements include but are not limited to the Company's plans for sales growth and expansion into new channels of trade, expectations of gross margin, expenses, new product introduction, and the Company's liquidity and capital needs. These matters involve risks and uncertainties that could cause actual results to differ materially from the statements made. In addition to the risks and uncertainties described in "Risk Factors", below, these risks and uncertainties may include consumer trends, business cycles, scientific developments, changes in governmental policy and regulation, currency fluctuations, economic trends in the United States and inflation. These and other factors may cause actual results to differ materially from those anticipated in forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Risk Factors The Company's future results may be affected to a greater or lesser degree by the following factors among others: Competition: The prestige fragrance market is volatile and extremely competitive. Consumer preferences and demands can shift dramatically reflecting changes in fashion and current fads. There are numerous fragrance products that are better known than the products marketed by the Company. There are also many companies which have substantially greater resources than Human Pheromone Sciences, Inc. and which have the ability to invest heavily in new product development and introduction. The Company can expect that its competitors will attempt to compete with the Company through the introduction of new products and promotion of existing products. In addition, the product life cycle of fragrances is shortening. Traditional fragrance companies now introduce a new fragrance every one to two years compared to every four to five years as in the past. This increase in competing fragrances makes it difficult for any one fragrance to hold the consumer's attention on a long-term basis. Although the Company believes the inclusion of human pheromones as a component clearly differentiates its products, other fragrances are competing for space with the Company's products at both the store level and in print and media advertising. Marketing: The failure to establish and maintain the necessary sales or distribution channels could have a material adverse effect on the Company's business. Although the Company believes its marketing strategy is the most cost-effective way to introduce its products, there can be no assurance that broader-scale retail launches will be successful. The Company cannot guarantee that retail outlets or catalogs will continue to carry the Human Pheromone Sciences products. If the current strategy is unsuccessful, marketing of the Company's products would require a new strategy and may require a significantly more expensive sales effort for which the Company may not have sufficient funds. Retail environment: Continued consolidation in the retail trade has led to the emergence of four major retail players who control the major share of the market. Federated Department Stores, The May Company, Dayton Hudson/Marshall Fields and Dillard Department Stores now comprise the majority of US upper end department stores. This consolidation could lead to price and promotional pressure and increased credit risk for the Company. The retail environment in better department stores is increasingly challenging. Retailers have aggressively cut inventories across the board, and attempt to utilize return privileges to maintain their desired inventory turns . Promotional support in the form of co-op advertising dollars is being cut back and retailers are feeling pressure to become more promotional in order to compete with price conscious chains appealing to bargain hunters. Fragrances and cosmetics are increasingly being sold in secondary markets such as discount perfumeries, drug chains and lower priced department stores. There can be no assurance that the department store class of trade in the U.S. will become more profitable in the near future. Seasonality: Sales in the fragrance industry are generally seasonal, with generally higher sales in the second half of the calendar year as a result of increased demand for fragrance products in anticipation of and during the Christmas holiday season. The anticipated seasonality of the Company's sales could cause a significant variation in its quarterly operating results. Patent protection: The Company's ability to compete successfully in the consumer market place and to attract licensing partners will depend, in part, on its ability to protect its proprietary technology. There can be no assurance that any patent or patent application owned or controlled by the Company will not be challenged, invalidated or circumvented or continue to provide commercially significant protection of the Company's technology or ensure that the Company may not be determined to infringe valid patents of others. In addition, the laws of certain foreign countries may not protect the Company's proprietary rights to the same extent as do the laws of the United States. No assurance can be given that others will not independently develop substantially equivalent proprietary information or otherwise gain access to the Company's trade secrets or that the Company can meaningfully protect its technology, proprietary information or trade secrets. Although the Company does not believe that its products infringe the proprietary rights of any third parties, there can be no assurance that infringement or invalidity claims (or claims for indemnification resulting from infringement claims) will not be asserted against the Company or that any such assertions will not materially adversely affect the Company's business, financial condition or results of operations. Irrespective of the validity or the successful assertion of such claims, the Company could incur significant costs with respect to the defense thereof which could have a material adverse effect on the Company's business, financial condition or results of operations. Attraction and retention of key employees: The success of the Company's future operations depends in large part on the Company's ability to recruit and retain key employees and consultants with research, product development and marketing experience, as well as other professionals who are in considerable demand. There can be no assurance that the Company will be successful in retaining or recruiting such key personnel. Dependence on third parties for manufacturing: The Company does not have facilities to manufacture its products and relies on Pherin Pharmaceuticals, Inc. to manufacture its pheromones and other third parties to supply components and to blend, fill and package its fragrance products. The Company believes that such manufacturing services are the most effective method of producing its products. The majority of the fragrance industry uses contract fillers, and the Company has no current plans to set up its own filling facilities. However, as with any business that is not vertically integrated, if the Company is unable to obtain or retain fragrance suppliers, component manufacturers or third party manufacturing on acceptable terms, it may not be able to obtain commercial quantities of its products, which would adversely affect results. Results of Operations Three Months ended September 30, 1998 as compared to the Three Months ended September 30, 1997 Net sales for the second quarter of 1998 were $2,312,805 representing a decrease of 40% from sales of $3,847,893 for the prior year's quarter. The decline in sales to the U.S. department stores accounted for 99% of the third quarter sales decrease. The Company decreased the number of promotional sets offered, and decreased the available quantities to the Department stores this quarter compared to last year's third quarter. These reductions were made in order to keep store inventories at levels consistent with the retailer's forecasts, and at a level where the Company could provide acceptable marketing support to the retailers. Gross sales of sets were down 44% this quarter compared to last years third quarter. Our regular priced product line gross sales to the U.S. department stores were also less than the 1997 third quarter at levels either better than or consistent with the current condition of the domestic fragrance business. inner REALM(R), which was launched in 1997, contributed 24% of the department store gross sales in the third quarter of 1997, compared to 9% in 1998 third quarter. The retail sales of inner REALM(R) continues to be less that desired, and the company is focusing on ways to bring the retailer inventories to acceptable levels with new marketing plans, and return provisions. Sales volume to the alternative classes of trade was consistent with the prior year. Our international shipments for the quarter were $5,167 more than last year, as we continue to develop our international markets The Company plans to aggressively pursue the international, secondary, and direct marketing distribution as they offer a cost-effective method of distribution. Net sales for the quarters ended September 30, 1998 and 1997 were as follows: - -------------------------------------------------------------------- Markets 1998 1997 - -------------------------------------------------------------------- U.S. Markets $2,026,618 $3,566,873 International Markets 286,187 281,020 ---------- ---------- Net Sales $2,312,805 $3,847,893 Gross margin declined in 1998 due to the increased percentage of sales derived from promotional and gift sets in both the department store and secondary markets. The sets provide a better-perceived value to the consumer, and the Company can offset the reduced margin with reduced selling and advertising expenses. The Company sees the increased use of promotional and gift sets as an economic way to promote selling through the product in conjunction with overall marketing and consumer awareness programs that increase consumer knowledge and desire for products containing synthesized human pheromones. Research and Development expenses for the third quarters of 1998 and 1997 were $107,751 and $86,844, respectively. These costs principally reflect payments and costs under the Company's contract with Pherin Pharmaceuticals, and additional costs to support licensing projects in process. Operating expenses decreased $854,223 to $1,502,715 in the third quarter of 1998 from $2,356,938 in the third quarter of 1997. Selling, advertising, marketing and distribution expenses decreased $842,541 from 1997 third quarter spending. The reduced spending is the direct result of the Company's continuing restructuring of the sales and marketing efforts targeted at the department store business. The focus on the use of promotional and gift sets, with more targeted and cost effective selling and advertising spending, has enabled the Company to reduced spending. General and administrative spending was $11,682 less than the third quarter of 1997 as efforts to hold these costs to a minimum are being made. The Company paid $16,658 in interest expense in the third quarter of 1998 on balances on its revolving bank line of credit. This compares to $23,514 interest expense in the second quarter of 1997. Nine Months ended September 30, 1997 as compared to the Nine Months ended September 30, 1998 Net sales for the nine months ended September 30, 1998 were $7,581,223. This was a 41% decrease from net sales of $12,761,724 for the nine months of 1997. The Company attributes the decrease to declines in re-order levels for inner REALM, and the reduced sales of promotional and gift sets. Initial launch quantities of inner REALM(R) shipped in the first half of 1997 were not duplicated by reorders in the first half of 1998. The Company's first fragrance offerings: Realm Women and Realm Men have shown modest declines of 9% in reorder quantities between the two years. Sales into the secondary distribution channel increased 66% for the first nine months of 1998 compared to 1997 nine month period. During the first nine months of 1998, foreign sales and sales to alternative classes of trade increased 15% from the prior year, and as a percentage of total net sales this group increased by 16%. - -------------------------------------------------------------------------------- Class of Trade 1998 1997 - -------------------------------------------------------------------------------- U.S. Markets $ 6,580,631 $ 11,818,232 International Markets 1,000,592 943,492 ----------------- ----------------- Net Sales $ 7,581,223 $ 12,761,724 Gross margin for the nine months of 1998 was 66% compared to 77% for the same period in 1997. This decrease is the result of decreases in sales of the Company's inner REALM products to the department store class of trade, and the increased percentage of promotional and gift sets sales to the department stores and secondary channels.. The Company conceived inner REALM as a higher gross margin product than its original Realm Women and Realm Men's lines in order to increase overall gross margin. The lower sales of inner REALM to department stores in the first half of 1998 has had a negative impact on gross margin for the period when compared against the same period in the prior year. Research and Development expenses for the first half of 1998 and 1997 were $290,199 and $251,700, respectively and are principally comprised of payments under the Company's contract with Pherin Pharmaceuticals. Operating expenses decreased $5,878,882 to $7,062,857 for the nine months ended September 30, 1998, compared to the 1997 expenses of $12,941,739 for the same period in 1997. Selling, marketing and distribution expenses decreased $5,837,649 to $5,718,557 for the nine months ended September 30, 1998 from $11,556,206 in the period ended September 30, 1997. In 1997, the Company incurred expenses to launch its second women's fragrance: inner REALM. In 1998, the Company carefully evaluated advertising plans to suit specific regional and consumer preferences. The Company continues to evaluate advertising spending and the effectiveness of co-operative advertising programs and in-store support personnel. Future cost reductions in this area will result from the shift in the Company's overall business focus from one of developing and distributing products to developing and licensing products to serve the needs of partners with established distribution networks. In 1998, the Company's general and administrative expenses decreased 13% over the prior year period due to decreases in headcount and spending controls. In 1998, the Company paid $38,127 in interest expense related to advances under its bank line of credit. During the first nine months of 1997, the Company had interest expense of $60,342. This higher expense in 1997 was due to larger bank borrowing balances incurred during the launch of inner REALM. LIQUIDITY At September 30, 1998, the Company had borrowed $1,305,390 against its $3,000,000 line of credit. Working capital was $2,002,985. At September 30, 1997, the Company had net borrowings of $1,272,149 and working capital of $4,182,447. For the first nine months of 1998, operating activities required net cash of $958,006. During the first nine months of 1997, net cash used in operating activities was $5,169,737. Assuming the Company's activities proceed substantially as planned, the Company's line of credit and anticipated revenues from product sales should be adequate to meet its working capital needs over the next twelve months. Working capital requirements will primarily be for the supply of inventory and accounts receivable financing. Additional working capital may be required should the Company's fail to generate consumer response levels to expected levels. Furthermore, additional working capital may be required should the Company experience a greater than planned success with its product and retail efforts. Funds would be needed for inventory build, accounts receivable financing and staffing purposes. If the Company fails to achieve significant revenues from its 1998 marketing efforts, or if the retail environment proves to be more capital intensive than planned, the Company may require additional funding. On April 1, 1998, the Company signed a renegotiated loan agreement with Mid-Peninsula Bank of Palo Alto, California (the "Bank") providing for a continued line of credit. The Company may borrow up to $3,000,000 at an interest rate equal to the Bank's prime rate plus .75% with borrowings secured primarily by the Company's trade receivables and inventory. The agreement, which expires in April, 1999, contains certain debt-to-equity and working capital covenants. There are no charges for any unused portions of the line. YEAR 2000 COMPLIANCE The Company has conducted a comprehensive review of its internal computer systems to identify the issues expected to arise in connection with the Year 2000. The Company has plans to review the status of its customers and suppliers with regard to this issue and assess the potential impact of non-compliance by such parties on the Company's operations. The Company's utilizes a server-based system for its material management, manufacturing, EDI interface, and financial systems. Year 2000 compliant software upgrades are now available from the vendors. Installing, and testing the upgraded software is expected to be completed by the end of the first quarter of 1999. Based on current estimates, management expects the total cost to remediate non-compliant systems will be less than $20,000.00. The Company has started to review the impact of Year 2000 compliance for the non-server based systems and equipment (i.e. telephone systems, fax machines, off the shelf software). This review will be completed by the end of the second quarter of 1999. The Company is in the process of determining the extent to which it may be impacted by third parties' systems, which may not be Year 2000 compliant. The Year 2000 computer issue creates risk for the Company from third parties with whom the Company deals on financial transactions worldwide. While the Company expects to complete efforts to seek reassurance from its suppliers and service providers, there can be no assurance that the systems of other companies that the Company deals with or on which the Company's systems rely will be timely converted, or that any such failure to convert by another company could not have an adverse effect on the Company. The Company has not yet developed any formal contingency plans for addressing any problems resulting from upgrades that do not resolve all of the issues of Year 2000, or if significant customers or suppliers do not become compliant. Failure to complete any necessary remediation by the Year 2000 may have a material adverse impact on the operations of the Company. PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K - ------- -------------------------------- (a) Exhibit 27.01-Financial Data Schedule E- xx SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant had duly caused this Report to be signed on behalf by the undersigned thereunto duly authorized. EROX CORPORATION Registrant Date: November 12, 1998 /s/ William P. Horgan ------------------------------------ William P. Horgan Chairman and Chief Executive Officer Date: November 12, 1998 /s/ Gregory S. Fredrick -------------------------------------- Gregory S. Fredrick Vice President, Controller EX-27.01 2 FINANCIAL DATA SCHEDULE
5 The Schedule Contains Summary Financial Information Extracted From Balance Sheets and Statements of Income 0000878616 Human Pheromone Sciences, Inc. 1 U.S. Dollars 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 1 26,205 0 2,592,025 (554,978) 3,153,259 5,328,928 812,262 (740,813) 5,400,377 3,325,943 0 0 2,145,535 17,667,024 (17,738,125) 5,400,377 7,581,223 7,581,223 2,556,664 7,062,857 290,199 0 38,127 (2,354,856) 0 (2,354,856) 0 0 0 (2,354,856) (0.23) (0.23)
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